According to a translation of the report by The New Arab's Arabic-language service, Binyamin Netanyahu and Transportation Minister Yisrael Katz have agreed to "immediately launch" the project.
"He added that it will strengthen relations with 'moderate nations' in the region and fight the threat of Iran," it added.
Katz last year spoke to Saudi-funded news website Elaph about the freight railway network, saying he wanted to revive the historic Hejaz railway.
He added that the project will also give Palestinians greater access to Haifa's port, with a station in the northern West Bank city of Jenin.
The report is the latest in a series showing warming ties between Israel and Gulf states that are increasingly coming out in the open as they find common cause against mutual foe Iran.
Saudi Crown Prince Mohammed bin Salman said in a magazine interview in April that Israelis as well as Palestinians "have the right to have their own land".
King Salman however later reaffirmed Riyadh's "steadfast" support for the Palestinian cause.
Netanyahu frequently boasts of growing, covert cooperation with moderate Arab countries.